Are you being offered a sign-on bonus? Read this first!

Getting a job offer is great. But, if you are in a hot industry or profession, then you may get lots of job offers. This puts you not only in a good position to get the highest salary, but also an opportunity to get a signing bonus. Companies that are competing for employees will offer all kinds of extras to get people to fill their positions.

The global job market is struggling to fill job vacancies, and many companies are giving out sign-on bonuses to attract the best people for their open positions. So, how do you get one of these bonuses, and what should you expect to receive if you do? We’ll cover what signing bonuses are, how they work, and what to look for:

• What exactly is a sign-on bonus?

• Why will a company offer a signing bonus?

• How does a sign-on bonus work?

• What should I expect for a signing bonus? 

• How are sign-on bonuses taxed?

What is a sign-on bonus? 

Anything given to you by an employer for initially taking a job can be considered a signing bonus. It’s usually money that is in addition to your agreed-upon normal compensation. This is common for higher-level positions, but it is happening much more for lower-level and even entry-level positions due to the high demand for certain jobs.

A sign-on bonus can be delivered in a number of ways. It could be a one-time payment or paid out over time. The company may offer you compensation through stocks or options. They could offer to relocate (at their expense) or it could be additional vacation time or other perks.

Before you agree to any deal, make sure you fully understand what you are signing up for. Every bonus will have some strings attached. Read the contract and the fine print to ensure you know what it means.

Why do companies have sign-on bonuses?

Employees are the lifeblood of any company, and most corporate expenses are directly related to human resources (the workers). A signing bonus is often used to attract those candidates to whom the company may not be able to pay a more competitive salary. Watch out for this if you are in a highly competitive market.

Another strategy companies use is to offer a lot of special benefits or perks to new employees. Gym memberships, discounts, free travel, and more. Make sure what they are calling a sign-on bonus is really something that they do not already offer to all employees. Also, weigh their value very carefully. What may seem like a good deal may not be worth as much as you thought.

Companies also offer bonuses to get people to relocate to less desirable locations. If you are willing to live where they want to move you to, then it may be a great offer. Otherwise, pass on it. Consider your work-life balance and distance from family and friends.

Look closely at the total compensation package, including the signing bonus. Is it competitive overall with other offers, or what similar jobs in the same industry are offering? Is the sign-on bonus enough to make up for a lower salary? Sometimes it is but study this carefully before making a deal.

What happens with a signing bonus?

A sign-on bonus is usually negotiated prior to receiving an employment contract. Once you sign a contract, then it is a done deal, and you are stuck with it. Sign-on bonuses are almost always used as a marketing tactic and will be prominently included in job postings. If you do not see a signing bonus listed, it is probably not available for the job, but it never hurts to ask.

As we have mentioned before, a signing bonus is no “free lunch.” There will always be stipulations included. They often require you to stay with the company for a certain minimum length of time (one year or more). If you quit before that time elapsed, you will probably have to pay back (or have deducted from your last check) any bonus that was given.

Another common requirement is that you sign a confidentiality agreement that prevents you from telling anyone about your sign-on bonus. This is primarily to keep you from giving the details about your signing bonus to your colleagues.

Finally, keep in mind, a sign-on bonus is a one-time bonus. Even if the payment is split into several payments, it’s not a recurring bonus you’ll receive every year. They’re separate from other types of bonuses, like performance bonuses.

How much is a typical sign-on bonus?

What is the normal amount for a sign-on bonus? Well, the answer is, it depends. There are cash signing bonuses that can range from $100 to over $100,000 or more. It is completely dependent upon the job, the industry, and how badly the company wants you. That being said, many job postings will include exactly how much the sign-on bonus is. Many higher level positions will not, and are negotiable.

Certain industries have higher sign-on bonuses. Some like healthcare, software, automotive, veterinary, cosmetology, and sales. Obviously, the more in-demand skills and hotter industries will have higher signing bonuses. Some examples of in-demand generic skills are sales, customer service, marketing, communication, and critical thinking. More specific skills are project management, finance, tech skills, data analysis, and programming.

To make the most of your bonus-earning opportunities, consider developing skills to make yourself more valuable to future employers.

What are the taxes on sign-on bonuses?

Assuming you are subject to US taxes, you’ll have to pay taxes on your sign-on bonus. The IRS currently considers signing bonuses as supplemental income. Supplemental income is subject to a federal flat tax rate of 22%. Most states also tax sign-on bonuses, but not all. This varies widely, check your state’s tax laws.

Example: For a sign-on bonus of $5000, you’ll need to pay $1,100 in federal income taxes. Which leaves $3,900.

Key takeaways

1. A sign-on bonus is something above and beyond the normal ongoing compensation for taking a job.

2. There are many forms of signing bonuses besides a lump sum cash payment.

3. Read the contract carefully and understand the bonus terms before signing. 

4. Consider the short and long-term implications (tax and total compensation).

5. Take advantage of skills, knowledge, and experience that are in high demand to get the best bonuses.